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GM Nationalization: The Path Not Taken, Choices Still Ahead
By Robert Weissman
June 3, 2009
Whatever the woes of General Motors -- and they are substantial -- it
does not follow that the government needed to drive the company into
bankruptcy. With at least $50 billion in government supports
undergirding the new GM, the Obama administration auto task force
deciding GM's fate could have steered the company away from bankruptcy
court. If it had so chosen, it could have acquired the company outright
-- a much better course to advance the legitimate public interest in
rescuing GM.
The purported rationale for bankruptcy was to deal with the problem of
recalcitrant bondholders, owed $27 billion by GM and rejecting the
GM/government offer of exchanging that debt for a 10 percent share in
the New GM. It has been apparent for weeks that the bondholder problem
could be addressed with some creative negotiations. By the end of last
week, the government had found a way to be creative; having sweetened
the pot, an accommodation with the bondholders was at hand.
But GM, under the aegis of the auto task force, filed for bankruptcy
anyway, setting in motion a series of likely excessive factory
shutdowns, needless dealership closings and anticipated cancellation of
the rights of victims of defective GM cars.
Given the deal with the bondholders, the bankruptcy declaration was
wholly discretionary and avoidable.
But the government had available a much better alternative to avoid
bankruptcy than just cutting a deal with the bondholders. It could have
simply taken complete control of the company.
Instead of declaring bankruptcy on Monday, the government could have
announced the taking of GM through eminent domain.
The government could have paid shareholders the market price for their
shares -- worth less than $1 billion. It could have paid bondholders the
market price for their bonds; trading at about 8 cents on the dollar,
that would have totaled a little more than $2 billion. The UAW, which
needs cash not equity to fund its healthcare benefit pool, could have
been given preferred stock paying a substantial interest rate. (Assuming
it could reach agreement on a shared vision for the restructured GM, the
U.S. government could have decided to work in concert with the Canadian
and Ontario governments -- which will control 12 percent of the New GM.)
This would have been an aggressive approach -- but less so than the
administration's maneuvers in bankruptcy.
With complete control of the company, the government could have
explicitly set out to manage General Motors in the public interest. As
Ralph Nader has said, this would not require micromanaging the company,
but it would require managing it.
There are many different public management options. Consider the U.S.
Postal Service as one example. It operates independently but under
government supervision, and with some affirmative mandates and
obligations. USPS is required to deliver on Saturdays, for example, even
though it may be more profitable to cut Saturday service. It must
deliver to the entire country, with a flat-rate first class stamp, even
though it would likely make more money with limited service or
differential rates.
A GM under public management would aim for a return to profitability --
or at least breaking even. But it would take into account other public
priorities. And it would focus on medium- and long-term objectives
rather than short-term profitability.
A publicly managed GM would take pains to avoid excessive layoffs and
would not needlessly close dealerships. A publicly managed GM would
abandon GM management's desire to move production for the U.S. market to
low-wage countries. It would maintain decent wages, benefits and working
conditions. It would not maneuver to deny victims of defective GM cars
their day in court. It would prioritize safety in its new vehicle design.
Above all, a publicly owned and managed GM would invest heavily in new
ecologically friendly technology. As part of a government plan to remake
the nation's transportation infrastructure, it would retool plants to
meet growing demand for buses and trains.
Having decided not to pursue the full public ownership route, the Obama
administration still finds itself about to own 60 percent of the New GM.
This majority stake comes with some important limitations; with a
significant portion of the company still trading publicly (10 percent
immediately after bankruptcy, and more over time), the government will
have legal duties to the minority shareholders.
Still, the government as majority shareholder will have ultimate
control, and the long-term and socially appropriate investment practices
can all be justified as in GM's long-term interest.
The biggest problem is that the Obama administration explicitly disdains
a desire to manage the company to advance the public interest. Even
worse, the administration has stated its desire to begin selling off the
government-held shares in GM in six to 18 months after the company
emerges from bankruptcy; that posture puts a premium on measures to
achieve short-term profitability … exactly the orientation that landed
GM in its present predicament.
Robert Weissman is editor of the Washington, D.C.-based Multinational
Monitor, <http://www.multinationalmonitor.org> and director of Essential
Action <http://www.essentialaction.org>.
(c) Robert Weissman
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